Using Profits From Sale for 203k Rehab to Defer/Avoid Taxes?

[Eric La Pratt]

Not sure if this is a 1031 exchange question or better suited for another forum:

If I sell a rental property and, in turn, use the profits from that sale to pay a GC to rehab a 4-unit property I purchased in February and intend to hold (and occupy 1/4th of), is it possible to defer or avoid taxes on the profits from said sale?

For what it's worth, I purchased an REO in February that I am in the middle of a 203k rehab. Whatever I do not use of the escrowed rehab funds at the end of the rehab will be applied to principal of the mortgage. I presume my timing is a little bit off for a 1031 as I would be selling after I purchased - but I am still in the middle of the 203k so I am kind of holding out hope another strategy may be possible. In theory, if I came to the table with said funds, I could have used the 1031 exchange and would have the same result.

Any thoughts about strategies I could employ here? I purposely don't have any deals in the pipeline and so would be sitting on the funds. If I could use them in my current project and avoid taxes, my mortgage would be paid down whatever I didn't use from escrow and it would be, essentially, money in the bank I could cash-out refi later.